Transcript Transition of the Baltic States

Estonia’s Transition to a Market
Economy


By Mark Vickers
Estonia’s Historical
Cultural Garden in
Cleveland, OH

Habitat for Humanity
project
GDP after Transition
GDP Converted to US Dollars in Billions
Real GDP growth Rate
$12.00
15
$10.00
10
$8.00
5
Estonia
0
Latvia
Estonia
$6.00
Latvia
$4.00
-5
$2.00
-10
$-
-15
1989
Worldbank.org
1993
2003
1989
1993
2003
Lithuania
Poland
-20
Worldbank.org
Population
4000000
45000000
3500000
40000000
3000000
35000000
2500000
Estonia
2000000
Latvia
1500000
Lithuania
30000000
10000000
5000000
0
0
Lithuania’s population is at 3.5 million
2003
Poland
15000000
500000
1993
Finland
20000000
1000000
1989
Estonia
25000000
1989
1995
2004
Poland’s population is at35 million
•It is hard to even compare Estonia and the other Baltic states to
other European countries due to its relatively small size
Geography

Distinguishing
characteristics
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Northern Europe
Separated from
Finland by the Gulf of
Finland
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Solid trading partner
Separated from
Sweden by the Baltic
Sea
Bordered by Latvia
and Russia
Fluctuations in Rule after first
Declaration of Independence
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Bolshevik Revolution in 1917
First Independence in 1918
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Establishment of Riigikogu
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Saeima-Latvia
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Similar to Estonia’s
parliament, but with more
corruption
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Seimas-Lithuania
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Democratic rep., but
dominated by Catholic
Church
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Treaty between Russia and Estonia in
1920
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World War 2
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Estonia needed to choose
side
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Nonagression pact of 1939
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Hitler-Stalin pact of 1939
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Break up of Baltics
Soviet Era
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Estonia and Latvia accused of
conspiracy
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1941 German attack on USSR
USSR recaptures Estonia
Stalin’s death in 1953
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Forced communes until Nikita
Krushchev in 1953, who
brought soviet republics
Emergence of Estonian
Communist Party
“Thaw Period” in late 1960s
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Lasted until early 1980s
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Arts and literature flourished as
well as economy
Estonia before independence
and Transition

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Brezhnev-1964-1982
 Brought planning in early
1980s
Russification in mid 1980s
 Communism and planning
 Proof that planning worked
 Soviet collapse
 Stagnation
Hitler-Stalin pact declared
illegal in 1989
 Communism abolished
 Free elections held
Russia's Impact on inflation in Estonia
1000
800
Inflation , consumer
prices (annual %) in
Estonia
600
Inflation, consumer
prices (annual %) in
Russia
400
200
0
1993
1994
1995
1996
http://devdata.worldbank.org.proxy.lib.ohio-state.edu/dataonline/
Independence and Transition

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Independence declared
on Aug. 20 1991 from
Soviet Union
 Parliamentary Republic
of 1918 reestablished
Major economic problems
after gradual dropping of
planning
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Cost of living index
Real wages
Fuel Prices and Rent
Inflation (graph next pg.)
Percent change by year of Real Wages
40
30
20
10
Estonia
0
-10
1990
1991
1992
1993
-20
-30
-40
-50
“The Baltic States after Independence”
1994
Latvia
Lithuania
Inflation of Food and Consumer Prices
1800
1600
1400
1200
1000
Inflation, food prices
(annual %) in
Estonia
Inflation, food prices
(annual %) Russia
800
600
400
200
0
1992
1993
1994
1995
1996
Inflation, consumer
prices (annual %) in
Russia
Inflation, consumer
prices (annual %) in
Estonia
http://devdata.worldbank.org.proxy.lib.ohio-state.edu/dataonline/
Adjusting to MarketsStabilization
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Reestablishment of the Parliamentary
Republic in the Riigikogu
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Introduction of the Kroon in 1992
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Imports
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With increased purchasing power of kroon, interest of
imports increased.
Foreign markets become interested in investment
Relative Balance of trade came in 1999
Bank of Estonia established
Foreign trade balanced
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“Buy Estonian” Campaign
Good relations established with Finland
Privatization
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Gradual Small and medium scale
privatization
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95% of population was employed
by state owned enterprises in 1989
Submission of property claims
through registration
Law of Property ratified in 1990
by Prime Minister Edgar Savisaar
Compensation or redistribution of
property
The Riigivaraamet created as
property board to decide how to
privitize small businesses

Intro of the Kroon in 1992 spurred
sales through auctions
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Gradual Large Scale
Privatization in 1992
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Offered to domestic and foreign
buyers
Foreign investors would bid on
enterprises through auctions
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Bidder a combination of a high
bid and a solid development plan
would receive the enterprise
Estonian Privatization Agency set
standards for foreign investors

Certain amount of employees
needed to be hired at all times
Problems with Privatization

Problems
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How to sell unprofitable
firms
Housing privatization
Paying for promised
compensation to owners of
property during Soviet era

Solution

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Law of Privatization passed
by The Riigivaraamet
Voucher system put in place
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Citizens received vouchers
based on work history
Citizens could use vouchers
to invest in investment
funds or pension funds
backed by the govt.
Vouchers also given out as
compensation
Response to Supply and
Demand

Consumption of goods

Fixed exchange rate of
the kroon allowed for
foreign markets to sell
products in Estonia

Domestic and foreign
purchase of goods
increased


67% increase from
1995 to 2000
Technology increases

57% of population had
mobile phones in 2001
Changes in consumption structure of
Estonia in 1995-2000.
Year
1995
2000
Share of
groceries in
purchases
45%
35%
Number of cars
(thousands)
380
464
101
359
Number of
travels
abroad
(thousands)
www.estonica.org
European Union

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Negotiations began in Brussels in 1998
EU rules, the Aquis established in Estonia
through The Draft Accession Treaty on
April 8, 2002.
Official date of accession of Estonia to the
EU was on May 4, 2004
My question as well as yours??

When will Estonia be able to convert its
currency to the Euro?
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Bringing down inflation rate from around 4.1%
to EU average of about 1.5%
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Stabilize budget deficit without printing more
money
Bringing down consumer prices
Cutting government spending and cutting budgets
Your questions???
References
European Enlargement Information Campaign. March 2004.
http://www.european-movement.org/enlargement/focus_on_estonia.php
Europa Online. Estonia’s Experience in Accession Negotiations with the EU. 11 February 2005. www.europa.org
Geography of Estonia. 2006 About.com Inc. The New York Times Company
http://geography.about.com/library/cia/blcestonia.htm
Gerner, Kristian and Stefan Hedlund, 1993. “The Baltic States and the End of the Soviet Empire.”
Norgaard, Ole. 1996. The Baltic States After Transition. Cheltenham, UK. Brookfield,
US. British Library of Congress
O’Connor, Kevin. 2003. The Greenwood Histories of The Modern Nations. “The Histories of The Baltic States.” Library of Congress. Westport,
Connecticut.
Orro, Peter. Interview. 16 January, 2006.
The World Bank Group. 2004. WDI Online. The Ohio State Libraries http://devdata.worldbank.org.proxy.lib.ohio-state.edu/dataonline/
Transition of Estonia. 1996. www.countrystudies.com
United States. Central Intelligence Agency. The World Factbook, 2005. Washington.
GPO, 2005.